When looking at car finance to buy a new or used car, one of the first questions you will need to co...
What is car finance pre-approval?
Car finance pre-approval is when a lender approves your car loan conditionally or ‘in principle.’ This means that they agree to lend you a certain amount to buy a car, subject to your final credit approval and invoice from the dealership or notice of sale from a private seller. It is important to understand that with car finance pre-approval, the money is conditionally approved. Once you find a car to the value of the loan, the loan is then approved if all the boxes are ticked. In essence, the lender keeps the car loan on hold until you find the right car.
How does car finance pre-approval work?
Car finance pre-approval works much the same as any type of personal loan approval. Firstly, you as the borrower will approach your selected lender and apply for the type of car finance you are looking for. The lender will then undertake the usual credit checks, confirm your identity and request any other documentation required to process your application.
The crucial difference is that you are not given the money immediately, but rather given conditional approval, or pre-approval for a period of time, whether that be weeks or up to a month.
Before considering applying for a car loan pre-approval, it is a good idea to calculate your approximate repayments, so you have an idea of how much you can afford to pay. You can do this easily with our car loan calculator.
At Grow Finance, once you have completed an online car loan pre-approval application, we will then arrange a call with one of our experienced lenders. They will ask you some additional questions and carry out a credit check. Once we have made an assessment, generally all going well, you will be provided with car finance pre-approval.
Why car finance pre-approval is a good idea
The main benefit of obtaining car finance pre-approval before looking to purchase your next car is to strengthen your negotiating position with either the dealership or the private seller. For private sellers, it also gives the additional confidence that you won’t have any issues getting car finance approval. If you are intending on purchasing through a dealer it removes the need to be dependent on dealer finance, which can be more expensive overall.
Other benefits of obtaining pre-approval
- Cheaper interest rates: If you give yourself time to shop around between lenders, you will be able to ensure you get the best value car loan for your requirements.
- With car finance pre-approval there is no obligation to proceed if you change your mind or your circumstances change. You are typically only charged an application fee (if applicable) once you proceed with the final loan approval.
- It ensures you know your budget from the get-go, how much you have to spend and what your repayments will be.
- Knowing your budget allows you to easily avoid the usual upsells (e.g., floor mats, tinted windows, paint protection) offered by dealerships.
Important points to consider with car finance pre-approval
Each time you apply for pre-approval a credit check is conducted, so be mindful that if you obtain pre-approval from multiple lenders, it can affect your credit score. To avoid this scenario, it is best to shop around first and only proceed with applying once you have selected your preferred lender. Also bear in mind car loan pre-approval is only valid for a limited period of time.
How to increase your chances of receiving car finance pre-approval
Know your credit history
Many borrowers opt to find out their creditworthiness before applying for car finance. Numerous online providers can easily provide you with your credit rating. If you have a low credit score you can look to fix any errors before applying for pre-approval.
Have your documentation ready
Collect recent payslips, bills, residential and employment histories and any financial statements in preparation. Providing these to your lender will not only speed up the car finance pre-approval process but may also assist in obtaining a more competitive interest rate.
Contact a non-bank lender
Non-bank lenders often offer more competitive rates than traditional banks and can also be a good avenue for borrowers who may have a lower credit score or bad credit history.
What are the next steps after receiving car finance pre-approval?
Once you have been given pre-approval, the next step is to provide the required supporting documentation in preparation for the final car loan approval process if you haven’t already done so. This includes a copy of your driver’s license, payslips, bank statements and any other required documentation. Once the vehicle has been selected, the lender will then contact the dealer, or seller to obtain an invoice or a notice of sale.
At this time a final assessment will be carried out before the final approval is granted. You will then be sent an electronic copy of your loan contracts to be signed and returned. The loan funds will then be paid directly to the dealership or private seller, and you will be free to drive away in your new car.
Frequently asked questions
Does pre-approval guarantee a car loan?
Pre-approval is a conditional approval based upon the information received at the time. It is not a guarantee per se, but it is an important and helpful part of the car loan process. Unconditional approval is provided once all documentation has been received and a final credit assessment has been conducted.
How long does car finance pre-approval take?
You can obtain car finance pre-approval within hours. The overall car loan processing time from application to settlement can take 1-4 days depending on the lender and other factors, including how quickly the dealership provides the required documentation.
Can you get pre-approval for privately sold cars?
Some lenders allow borrowers to obtain pre-approval for used and privately sold cars, or cars sold at auction. It is best to check with the lender before proceeding. At Grow Finance our car finance product allows individuals and businesses to purchase both new, used and privately sold cars.
If you are looking for car finance pre-approval, contact the team at Grow Finance today or fill out our online application.